GST - Advantages & Disadvantages

GST stands for Goods and Services Tax, which is levied in India on the sale of goods and services. GST has compiled and aggregated a range of indirect taxes previously levied by the federal and state governments. VAT, Service Tax, Local Body Tax, Central Excise Duty, Central Sales Tax, Purchase Tax, Luxury Tax, Entry Tax, Octroi, and other taxes are among them. It benefits all stakeholders, including corporations, federal and state governments, and individuals. However, the introduction of the GST has a number of drawbacks. Let's take a closer look at its aspects, as well as the numerous benefits and drawbacks of GST.

GST Characteristics

Advantages of GST

• Tax credit for inputs:

Producers and service providers will lower the tax they have previously paid on their products by the amount they have paid once the output taxes have been paid. Manufacturers' or service providers' total tax burden is anticipated to reduce. As a result, cheaper prices encourage higher consumption.

• Evasion of taxes:

Only if the specifications are provided by the supplier as a return does the input credit apply to the recipient, i.e. producers or service providers. This helps product and service providers and, as a result, tends to reduce tax avoidance.

• Schemes of composition for small businesses: 

The majority of small businesses have decreased their tax and compliance burdens. As a result, small firms with earnings between 20 and 75 lakh rupees may benefit from the adoption of composition programmes.

• Improved logistical efficiency: 

With the implementation of GST, restrictions on the transfer of commodities between states have been reduced (one country, one tax scheme). To avoid the new GST and state entrance taxes, multiple warehouses had to be controlled previously. As a result, the overall cost of operations will rise. As a result of the GST, warehouses are establishing facilities in strategic areas rather than in every other city.

• Unorganized sector regulation:

Textile and construction industries were once mostly unorganized and uncontrolled. There are provisions for online payments and compliance under GST. As a result, such sectors' responsibilities and regulations are included. 

• Removes the cascading tax's effects:

GST is organized and constructed in such a way that it eliminates the cascading effect, which refers to a tax plan in which the tax burden is carried through at every point of sale. As a result, the product or service's value has increased. Taxes have a direct effect on the cost of products and services, hence there is no cascading effect. The expense of a tax is passed on to the customer, resulting in improved cash flows and working capital management for the industry.

• Transparency:

GST is a transparent tax system that eliminates hidden costs and fees for licensed retailers. The price of doing business would be lower. 

• Registration requirements are more stringent:

Previously, enterprises with a turnover of more than 5 lakh rupees were exempt from paying VAT. The value limits in each state were different. The GST threshold, on the other hand, has been raised to 20 lakh rupees. Smaller enterprises and service providers would be exempt.

• The number of compliances is lower:

Previously, each tax had its own set of returns and enforcement procedures. Monthly returns, for example, were filed, service taxes were paid monthly, and VAT varied by location. Following the implementation of GST, however, there has been a decrease in compliance. There is only one return that needs to be filed.

• E-commerce operators have a specific treatment:

The e-commerce market did not specify the supply of goods until the introduction of GST. Some governments labeled these as enablers or intermediaries and barred them from filing VAT returns. Under GST, all of these inequalities were eliminated.

Disadvantages of GST

• Business challenges in the short term:

Because of the input credit lock-up, the transition to GST has affected the working capital of businesses in their early stages.

• System of online taxation:

Invoicing was done with pen and paper under the prior tax system. The entire system was digitized under the GST system. It became a technically complex change that smaller businesses found difficult to embrace.

• Multiple registrations are allowed:

Compliance with GST requirements is exceedingly difficult for businesses having branches in multiple Indian states. Contrary to popular belief, there is no singular compliance with the same. They'll have to register with each state and follow their rules.

• Various GST kinds include:

The GST compliance system, which includes CGST, SGST, and IGST, is influenced by the concept of one country, one tax.

• Complexities for the businesses:

The GST Act has given the federal and state governments the right to tax businesses. As a result, the bylaws are linked. For many entrepreneurs across the country, this has heightened their level of uncertainty.

• Being GST-compliant entails a number of things: 

Small and medium-sized businesses have avoided paying taxes. They had to quickly understand the complexity of the GST regime after it was implemented. They have to issue GST-compliant invoices as well.

• Operational costs have risen:

Organizations had to train personnel in order to comply with the GST, which resulted in higher operating costs. The alternative was to hire tax professionals who were capable of processing the changes.

• Manufacturing in the United States:

In contrast to the 'Make in India' campaign, the GST impacts the manufacturing business because the excise duty exemption has been reduced from Rs.1.5 crores to Rs.20 lakh.

• Revenue distribution:

A source of contention is revenue sharing for items and services included in the corresponding list.

• Discount and reward schemes are affected:

Because the items are levied on pre-discounted pricing, GST has an impact on rebate and incentive programmes. In this case, previous products were taxed after the decreased rates were implemented.